LPS urges banks to lower lending rate

LPS urges banks to lower lending rate

Member of the board of commissioners of the LPS, Didik Madiyono. (ANTARA/Dewa Wiguna)

Jakarta (ANTARA) - The Deposit Insurance Corporation (LPS) has urged banks to slash lending rates following the lowering of the guarantee interest rate by 50 basis points for rupiah deposits and 25 basis points for foreign currency deposits.

The LPS has reduced the guarantee interest rates in an attempt to boost credit demand and aid economic recovery.

“We hope that this will be carried forward into lowering bank lending rates," member of the board of commissioners of the LPS, Didik Madiyono, said at an online press conference to announce the interest rate cut in Jakarta on Tuesday.

The reduction in the guarantee interest rate for rupiah deposits in commercial banks to 4.5 percent and Rural Banks (BPRs) to 7 percent and for foreign exchange to 1 percent applies for the period from 25 November, 2020 to 29 January, 2021, he informed.

With the decrease in the LPS guarantee interest rate, it is hoped that the reduction in banking costs would lead to lower bank loan interest rates, Madiyono said.

The decrease in bank loan interest, he said, would encourage demand for credit, from corporations for instance, and help the National Economic Recovery (PEN) program to run optimally.

He said he hopes the contraction in credit growth witnessed in the last few months would improve through the steps taken by LPS, BI, OJK, and the government in synergy with PEN.

Didik said he is optimistic that banks will lower lending rates because earlier Bank Indonesia had also lowered the benchmark interest rate by 25 basis points to 3.75 percent.

"Indeed, banks have started to reduce (credit interest), maybe not as fast as before, of course, there will be a decrease, especially triggered by a decrease in the BI rate," he predicted.

Earlier, the Financial Services Authority (OJK) reported credit realization of Rp5,531 trillion as of September, 2020, which reflects a growth of just 0.12 percent compared to the same period last year (yoy).

Meanwhile, compared to December, 2019 (ytd), lending contracted 7.80 percent from Rp5,617 trillion.

On the other hand, customers showed a preference for saving their funds in banks, as reflected by the significant growth in bank third-party funds (DPK), which swelled 12.88 percent as of September, 2020 (yoy).

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